Weighted average cost basis
When you buy a stock in more than one transaction, you no longer have a single purchase price — you have several. The weighted average cost basis collapses them into one number: the total dollars you have put in divided by the total shares you hold. It is weighted because each price counts in proportion to the shares bought at it, so a large purchase pulls the average toward its price more strongly than a small one. That single figure is the price your shares need to reach, on average, before the position is in profit.
The formula
Total cost = Σ (shares × price) for each buy
Average cost per share = Total cost ÷ Total shares
where each buy contributes its own shares and price. The total cost is the sum of every purchase, and dividing by the combined share count gives the weighted average — your blended break-even price.
Worked example
Say you buy 10 shares at $100.00, then average down with 20 more at $70.00 after the price falls. Here is how the weighted average works out:
| Step | Amount |
|---|---|
| Buy 1: 10 shares × $100.00 | $1,000.00 |
| Buy 2: 20 shares × $70.00averaging down after the price falls | $1,400.00 |
| = Total invested30 shares in all | $2,400.00 |
| = Average cost per sharetotal invested ÷ 30 shares — the position's break-even price, well below the simple average of the two prices | $80.00 |
Computed with this calculator's default settings — open the tool above and you'll see the same numbers, then swap in your own buys.
Averaging down and why it isn’t a simple average
Averaging down is the practice of buying more shares after a stock has fallen. Because the additional shares cost less, they drag your weighted average cost lower, which means the stock has less ground to recover before you break even. The key thing to understand is that the result is not a simple average of the prices you paid. If you buy 10 shares at $100 and 90 shares at $50, the simple average of the two prices is $75, but your true average cost is only $55 — because the cheaper buy was far larger and dominates the blend. Weighting by share count is what makes the figure meaningful.
Once you know your average cost, you can work out what a sale would return with thestock profit calculator, or look at the income side of a holding with thedividend yield calculator.
Cost basis for break-even, not tax lot accounting
This calculator gives you a single blended cost for the whole position, which is what you want for judging break-even. It is not the same as the cost basis your broker reports for taxes when you sell only part of a holding. Tax cost basis depends on the accounting method — commonly first-in-first-out, where the oldest shares are treated as sold first, or specific-share identification, where you choose which lots to sell. The gain or loss on a partial sale can therefore differ from this average, so use this figure for planning and break-even, and rely on your brokerage statements for the numbers that go on a tax return.
Frequently asked questions
How do you calculate your average cost per share?
You take the total amount you spent across every purchase and divide it by the total number of shares you own. For each buy, multiply the shares by the price you paid, add those amounts together to get your total cost, then divide by the combined share count. The result is your weighted average cost per share — the price at which the position breaks even before fees and taxes.
Why is it a weighted average and not a simple average of the prices?
A simple average would treat every purchase price equally, regardless of how many shares you bought at each. A weighted average reflects reality: a buy of 100 shares affects your cost basis far more than a buy of 10 shares. By weighting each price by the number of shares purchased at it, the calculation shows the true cost of the whole position rather than an average of the price tags.
What does it mean to average down?
Averaging down means buying more shares after the price has fallen below what you originally paid. Because the new shares are cheaper, they pull your weighted average cost per share lower, which lowers the price the stock has to reach for you to break even. It is a way to reduce your cost basis, though it also increases the amount of money you have committed to a position that has already declined.
Is my average cost the same as my tax cost basis?
Not necessarily. The average cost here is a break-even figure for the whole position. For tax purposes, the cost basis used when you sell depends on the accounting method, such as first-in-first-out or specific-share identification, and which lots you actually sell. Brokerages track this separately, so the gain or loss reported on a partial sale can differ from this blended average.
Does this calculator include commissions or fees?
No. It uses only the share counts and prices you enter, so the result is the average cost of the shares themselves. If you want to fold in trading commissions or fees, add them to the price you paid per share before entering it, or treat the resulting average as a floor that your true break-even price sits slightly above.
Disclaimer: This calculator is foreducation and illustration only. It computes a weighted average cost per share from the figures you enter and ignores commissions, fees, and taxes. The result is a break-even estimate, not a tax cost basis, and nothing here is investment, tax, or trading advice.